Due Diligence in Property Transactions: What You Need to Know
When buying or selling a commercial property, there’s more at stake than just location and square footage. One of the most critical—but often overlooked—steps is environmental due diligence.
Whether you’re a buyer, seller, lender, or developer, understanding the environmental condition of a property is essential for protecting your investment, avoiding legal liabilities, and ensuring a safe future use of the site.
What Does Environmental Due Diligence Include?
Due diligence typically involves:
Phase I Environmental Site Assessments (ESA):
This is the first step in identifying potential or existing environmental contamination. It includes a review of historical land use, regulatory records, aerial imagery, and a site visit to identify any “recognized environmental conditions” (RECs). A Phase I ESA is often required by lenders and aligns with Canadian Standards Association (CSA) and ASTM guidelines.
Phase II Environmental Site Assessments:
If potential contamination is identified during Phase I, a Phase II ESA may be necessary. This involves intrusive sampling and laboratory analysis of soil, groundwater, and sometimes indoor air, to confirm the presence and extent of contamination.
Designated Substance Surveys (DSS):
Required under Ontario’s Occupational Health and Safety Act (OHSA), a DSS identifies the presence of substances such as asbestos, lead, silica, and mercury in a building—especially important before renovation or demolition.
Hazardous Materials Audits:
These audits assess the presence of both designated and non-designated hazardous materials (e.g., PCBs, mold, ozone-depleting substances), ensuring compliance with applicable regulations and safeguarding occupant health.
Why It Matters
Environmental liabilities can be costly and long-lasting. Contaminated soil or groundwater can require expensive remediation, delay development projects, or reduce property value. Unidentified hazardous building materials can pose serious health and legal risks during construction or occupancy.
Clear and thorough due diligence helps:
Buyers assess risk and negotiate purchase terms
Sellers avoid future legal claims by disclosing known issues
Lenders evaluate financial risk and secure collateral
Insurers determine appropriate coverage and premiums
Proactive Protection for Property and People
When performed properly, environmental due diligence is a strategic tool. It ensures transparency, promotes safer development, and supports informed decision-making throughout the transaction process.
